CANADA FX-C$ hits 2-week high after GDP data, cenbank moves

Wed Nov 30, 2011 11:37am EST
 
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   * C$ tops 2-week highs after strong GDP data
 * Canadian economy grows 3.5 pct annualized in Q3
 * End-of-month flows boost currency
 * Global central banks announce liquidity moves
 * Bond prices slip across curve in risk-on bid
 (Updates to late morning)
 By Claire Sibonney
 TORONTO, Nov 30 (Reuters) - The Canadian dollar hit its
highest level in more than two weeks against the U.S. dollar on
Wednesday, getting a boost from stronger than expected domestic
growth data and a move by major central banks to increase
liquidity in the global financial system.
  The currency CAD=D4 touched a session high of C$1.0124
against the U.S. dollar, or 98.78 U.S. cents, its best level
since Nov. 14.
 Data showed the Canadian economy grew at an annualized rate
of 3.5 percent in the third quarter, recovering from a 0.5
percent contraction in the second quarter as Canada felt the
economic effects of Japan's earthquake and tsunami.
[ID:nN1E7AT05Q]
 A Reuters survey of analysts had forecast a rise of 3.0
percent. By contrast, third-quarter real gross domestic product
in the United States grew 2.0 percent.
 "It's certainly stronger than (the Bank of Canada's) 2
percent growth that they projected in October, however I think
their main concern is the external environment," said Paul
Ferley, assistant chief economist at Royal Bank of Canada.
 "I think it still argues for the bank to keep policy
accommodative."
 Higher interest rates tend to strengthen currencies by
attracting international capital flows, and vice versa.
 Canada's primary dealers don't expect the central bank to
resume raising interest rates until late next year or 2013, and
traders pared back bets of future interest rate cuts following
the GDP data. < BOCWATCH> [CA/POLL]
 By 11:01 a.m. (1601 GMT), the Canadian dollar had retreated
to C$1.0167 against the U.S. dollar, or 98.36 U.S. cents, but
was still much higher than Tuesday's North American close of
C$1.0303 to the U.S. dollar, or 97.06 U.S. cents.
 The currency was already on firmer ground heading into the
GDP report, after global central banks - including the Bank of
Canada - announced a co-ordinated move to keep funds flowing
through financial markets that are being rocked by Europe's
escalating debt crisis. [MKTS/GLOB]
 The announcement fueled equity markets' appetite for risk
as investors dumped the safe-haven U.S. dollar, lifting
currencies such as the Australian, New Zealand, and Canadian
dollars, as well as the euro. [FOREX]
 Blake Jespersen, director of foreign exchange sales at BMO
Capital Markets, said that part of the big move on Wednesday
was related to end-of-month hedging activity and portfolio
rebalancing, which was so far proving to be U.S.-dollar
negative.
 "This starts to bring parity back into play. A lot of talk
already about parity and the order boards are starting to fill
up around that level again."
 However, he noted that investors may be tempted to take
profits after the Canadian dollar's sharp rally.
 "I think C$1.0080 would be a decent level to consider
either taking back U.S. dollar shorts or taking an outright
long U.S. dollar view," Jespersen said.
 Canadian government bond prices retreated across the curve,
tracking U.S. Treasuries lower amid lowered safe-haven
appetite. [US/]
 The two-year bond CA2YT=RR fell 5 Canadian cents to yield
1.019 percent, while the 10-year bond CA10YT=RR dropped 37
Canadian cents to yield 2.166 percent.
 (Reporting by Claire Sibonney; editing by Rob Wilson)